Court of Claims Issues Two Decisions on Distribution Proceedings

The Court of Claims decided two decisions last week that will, hopefully, obviate the need for Claimant’s condemnation counsel to bring distribution proceedings on behalf of their clients in New York. For those unfamiliar with the term, a distribution proceeding is brought as an action seeking the disbursement of funds that have been deposited into the State comptroller’s account. Specific to eminent domain cases, and at issue in these two decisions, was the State’s deposit of the advance payment amounts into the State comptroller’s account pursuant to Eminent Domain Procedure Law 304(E), which ceases the accrual of otherwise statutorily required interest on the amount.

Under EDPL 304(E), three scenarios exist under which the deposit may be made:

(1) Where the condemnee has accepted the offer as either payment in full or as an advance payment but “the attorney general determines that there is a conflict of title or a conflict arises so that he is unable to make certification of the person or persons legally entitled to the amount payable under an agreement adjusting all legal damages caused by any such acquisition” (304[E][1])

(2) Where the property owner rejects the offer or it is deemed rejected via the passage of 90 days from vesting without an agreement (304[E][2])

(3) Where the taking was “for a federally-aided project and the condemnor determines it is necessary to deposit the amount of the highest appraised value without delay in order to proceed with the letting of a construction contract and to comply with federal laws, rules and regulations.” (304[E][3])

A deposit made pursuant to any of the provisions terminates the condemnor’s obligation to pay interest to the condemnee on the amount deposited, provided it deposited into an interest bearing account.

In both cases, The Other Heights, LLC v. State of New York and 292 Piermont, LLC v. State of New York, the State deposited the advance payment amounts allegedly pursuant to the third provision, claiming a federally-aided project required the deposit. The timing of the deposits was egregious. In 292 Piermont, the deposit was made on the same day that title the property vested in the State. In The Other Heights, the State deposited the money one day after title vested in the State.

Upon  the commencement of the distribution proceedings, Claimants argued that the federal funding argument was an “after-the-fact subterfuge” and that the State in fact “deposits the advance payment for virtually every taking it make simultaneously or soon after title vests, without regard to the requirements of the statute.”

In support of the deposits, the State argued in their papers that the deposits were necessary to proceed with the letting of a construction contract for a federally aided project. The State submitted little evidence in support thereof: affidavits in each case and a memo from the Department of Transportation alleging that the deposit was the result of a need to file documents so that construction could proceed, was all that was provided in support of the State’s argument.

The Court stated (in 292 Piermont):

Yet the court is provided with neither copies of the documents nor specific factual allegations as to when they were created and how their creation and filing related to the eminent domain deposit… nor is it provided with any information whatsoever relative to the construction situation at the site…

 

The court in each case concluded that there was no indication in the records that there was any construction contract in existence or at hand relating to the property taken from the petitioners at the time the advance payment deposits were made. Thus, the court concluded that interest could only properly be suspended under EDPL 304(C) after 90 days had elapsed from the date the offer for advance payment was sent to the owners. (This provisions states, “If the Condemnee does not reject or accept the offer within 90 days, it shall be deemed rejected, and if deemed rejected… the condemnor’s obligation to pay interest on the amount of the offer shall be suspended as until such time as the condemnee accepts the offer as payment in full, or as an advance payment.”)

Further, in each instance, the State sent the property owner an “offer package” containing both an Agreement of Adjustment (for execution if the owner agreed with the respondent’s evaluation of value and chose to accept the Advance Payment as payment in full) and an Agreement of Advance Payment (in the event the owners accepted the offer as an advance payment only and wished to file a claim for further compensation). The Agreement for Advance Payment in each case contained the following language:

The Claimant agrees, as a prerequisite to such advance payment, to execute and deliver or cause the execution and delivery to the Attorney General of all papers which the Attorney General deems necessary to authorize payment and to secure to the State a full release of all claims (other than the claim of the Claimant) by reason of the aforementioned appropriation.

Claimant in The Other Heights returned the agreement and changed the language of the above paragraph to read “… all formal papers reasonably necessary to effect a valid transfer of title as acquired. See EDPL sec 304(c). ” Claimant in 292 Piermont similarly sent a letter accepting the offer as an advance payment and objecting to the language quoted above. EDPL 304(C) allows the deposit of an advance payment in instances where “a condemnee unreasonably fails to provide the condemnor with all papers  reasonably necessary to effect a valid transfer of title.”

The State claimed that this modification of the Agreement constituted a rejection of the advance payment offer and provided a second justification of the deposits.

The Hon. Stephen J. Mignano took the opportunity to correct the State’s misguided approach to advance payment agreements and its inaccurate philosophy that the former property owner must shoulder a burden of proving that the Advance Payment Agreement is improper. Rather, the Court noted that EDPL is “remedial in nature” and “designed to facilitate payment to condemnees of funds to which they are constitutionally entitled.” The court explained that in the context of an eminent domain proceeding and advance payment agreement, the parties to the contract are not “freely bargaining” and rejected the State’s argument that general contract principles should be applied.

More importantly, EDPL 304(A)(4) declares that the “right of the condemnee to the advance payment shall not be conditioned on the waiver of any other right.” In Cronk v. State of New York, 100 Misc2d 680 (Ct Cl 1979), the court stated that “this clause recognizes the injustice of allowing the State to tack on additional requirements to an ‘Agreement for Advance Payment’ and its pleasure.” The Court, citing Cronk, addressed the issue head on in The Other Heights:

Addressing the effect here of the then newly-enacted statute referred to in Cronk– specifically the provision that the condemnee’s “right. . . to the advance payment shall not be conditioned on the waiver of any other right”- respondent’s position is apparently that it can attach whatever provisions it wants to the advance payment agreement unless the condemnee can demonstrate how it could be harmed by what the condemnor wants to attach as a condition to the receipt of what the condemnor contends is just compensation; i.e. that the statute creates a presumption in the Condemnor’s favor. No basis for this startling interpretation is offered and none can be perceived, except perhaps as a part of a conception whereby the advance payment is not the product of an unequivocal constitutional obligation but rather the result of ostensible “bargaining” that in reality amounts to an imperious power dictating the terms under which the innocent landowner is compensated. Respondent does not even deign to provide the court with the basis for its conclusion, merely reciting the general principles that, as a contract offeror, it has the right to dictate terms and, if those terms are not agreed to, then there is simply no meeting of the minds.

The Court in 292 Piermont and The Other Heights concluded that Claimant’s modifications made to the Advance Payment Agreements were reasonable and did not diminish any reasonable obligation under the law. Thus, “petitioner(s) complied with all reasonable conditions attendant upon its receipt of the advance payment and the account should have been released . . . when the agreement was returned.”

In conclusion, the Court’s decisions held that the former property owners were entitled to interest for a period of 90 days starting from when the offer of advance payment was made, and a period starting when payment should reasonably have been made following the petitioners’ respective responses to the advance payment agreement, until the date the accounts are actually released.

The importance of these decisions, and a similar decision recently decided in Freiman Coated Fabric Corp. v State of New York, cannot be understated. The State can no longer skirt its constitutional obligation to pay the statutorily required interest on advance payment amounts by claiming that it has the right to unilaterally dictate the terms of the Agreement. Our firm is pleased to have represented the claimants in both of the above-referenced cases. The full decisions can be read by clicking on the links below:

292 Piermont, LLC Decision and Order The Other Heights – Distribution Decision.

The Other Heights – Distribution Decision

If you’re interested in reading more about advance payment awards and the requirements thereof, Judge Dickerson provided a thorough discussion of the history and purpose of advance payments in Matter of Village of Port Chester (Didden & Bologna), 5 Misc. 3d 1031(A). Therein he stated, “It is clear that condemnees may accept an advance payment without being forced to give up any rights they may have to seek greater compensation or, for that matter, challenge the condemnation proceeding itself. (citations omitted). Judge Dickerson rejected the condemnor’s argument that the advance payment could not be processed until the extinguishment of a federal appeal of the taking. The court stated,

These procedures establish a method ” to insure that condemnors quickly and justly compensate individual owners whose property has been acquired under the power of eminent domain. This procedure requires, for example, that the owner be justly compensated for his property at an amount determined by an appraiser; that all offers must be in writing and that the owner can reject an offer and accept it as an advance payment pending a full settlement.

Matter of Village of Port Chester, 5 Misc. 3d 1031(A) (N.Y. Sup. Ct. 2004)

Posted in Advance Payments, Condemnation Procedures, Eminent Domain Abuse, New York, Offer & Compensation, Valuation
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